‘National Minimum Wage

Council notes:

A review from the government (BIS) has suggested that the Low Pay Commission (LPC) should formally consider its impact on ‘employment and the economy’ before recommending future increases in the national minimum wage (NMW). The review explicitly recommends that new terms for the commission should incorporate ‘the understood and accepted goal to raise the wages of the lowest paid without damaging employment or the economy’.

Council also notes: the recent abolition of the Agricultural Wages Board.

Council further notes:

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the National Minimum Wage Act 1998 created the first minimum wage across the United Kingdom. The NMW took effect on 1 April 1999 and is traditionally announced in March each year by the LPC, after negotiations with employers, unions and the government;

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the NMW currently stand at £6.19 per hour for workers aged 21 years and older, £4.98 per hour for workers aged 18 to 20;

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according to the Low Pay Commission (2012), the adult rate of the NMW has increased by nearly 69 per cent since its introduction. That is faster than both average earnings and prices. Since October 2006, however, the increases in the minimum wage have broadly been in line with average earnings, though below inflation;

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based on a wealth of economic research, the Low Pay Commission conclude that the lowest paid have received higher than average pay rises, there has not been a rise in wage inflation and, on balance, there has been little or no significant adverse impact of the minimum wage on employment. They quote: ‘The NMW was introduced 12 years ago and, at about the same time, wage inequality at the bottom of the earnings distribution started to fall, having risen over the preceding 20 years’;

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according to research for the LSE (2012), areas with the lowest wages prior to the introduction of the minimum wage experienced the greatest falls in inequality over the period from 1998 to 2010. In addition, the fall in wage inequality has been more pronounced in younger age groups. These findings have resonance for Plymouth – a generally low wage economy with a relatively large younger (aged 18-24) population;

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while no specific data for the impact of the NMW on Plymouth exist, trends in the city’s earnings over the last decade point to an improvement in relative position. Between 2000 and 2010, average weekly workplace wages in the city increased from £360 to £422 per week[1]. This meant that average wages relative to the SW average increased from 97% to 101per cent (1 per cent above) and from 86 per cent to 89 per cent relative to the national average.  On a resident basis, the relative gaps also closed – 92 per cent to 93 per cent (vs. SW) and 83 per cent to 85 per cent (vs. UK);

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the value of the NMW in real terms has fallen to 2004 levels under the coalition.

Council believes that any freeze or reduction in the real value of the NMW may:

(a)

reverse the positive trends seen in the labour market since its inception;  

(b)

reduce incentives to work at a time where welfare reform is attempting to resolve this very issue. If remuneration for work diminishes, this could make the option of living off benefits a rational choice for individuals;  

(c)

reduce consumer spending power at a time when demand is weak, real incomes constrained, and expectations over future prospects uncertain. In theory, those individuals at the lower end of the earnings spectrum tend to have a greater marginal propensity to spend to meet basic demands;

(d)

have an adverse impact upon the socio-economic wellbeing of households and families, for example, by increasing pressures on personal debt;

(e)

have an adverse impact on the apprenticeship programme – employers may make an active decision that lower paid part-time posts are more attractive than full-time apprenticeship post. This could have a disproportionate impact on younger people.

Council believes: that protection for the lowest paid workers is under threat. 

Council therefore resolves to:

(1)

ask the Chief Executive to write to the Secretary of State outlining our concerns over changes to the remit of the Low Pay Commission and emphasising the value and importance of the NMW to the local economy. 

(2)

ask the Chief Executive to write to Plymouth MPs outlining these concerns and asking that they lobby for their affected constituents, emphasising the value and importance of the NMW to Plymouth’s economy.’ 

(f)

a minimum wage could lead to improved employment matters;  

(g)

when a minimum wage was first introduced, it was believed that it would damage business and lead to unemployment.  In fact, it lifted millions of people out of poverty; 

(h)

if the minimum wage was raised, it would raise the cost to business, leading to inflation which in turn would lead to people getting poorer. 

(1)

to ask the Chief Executive to write to the Secretary of State outlining the council’s concerns over changes to the remit of the Low Pay Commission and emphasising the value and importance of the NMW to the local economy. 

(2)

to ask the Chief Executive to write to Plymouth MPs outlining these concerns and asking that they lobby for their affected constituents, emphasising the value and importance of the NMW to Plymouth’s economy.